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Older Americans have a lot of assets
As current and future retirees consider what to do with their assets, their homes may be one area where a significant amount of their equity is tied up, which begs the question: “Should I pay off my mortgage?”
Owned by homeowners age 65 and older Median Home Equity By 2022, that number will reach $250,000, a 47% increase from 2019, according to Harvard University’s Joint Center for Housing Studies.
As some retirees relocate, they turn to using this equity in lieu of taking on a new mortgage.
“We’re seeing more and more all-cash buyers,” said Jessica Lautz, deputy chief economist at the National Association of Realtors.
in its 2023 Annual Report On the home buyer and seller side, the trade association found that about one-third of baby boomers aged 59 to 68 recently purchased a home with all cash. For older baby boomers aged 69 to 77, that share rises to 43 percent, and for the Silent Generation, it rises to about half.
Some experts believe traditional homeowners may also benefit from reducing their mortgage debt balances, which could free up more monthly income.
“If you can reduce your ongoing expenses, it can give you peace of mind and give you more wiggle room for withdrawals from your portfolio,” Bentz said.
Mortgage interest rates may affect repayment calculations
Bentz said mortgage repayment calculations could change based on whether people could earn more than their mortgage rates through safe, secure investments.
Benz and her husband paid off their mortgage more than a decade ago. But she said the right answer then might not be the right answer today.
Financial blogger and best-selling author JL Collins tells Benz in her book that whether you pay off your mortgage — whether you retire or not — depends on whether it makes financial sense as well as emotionally. feelings on.
Collins said for mortgages with interest rates of 3 per cent or less, it didn’t make sense to pay off the loan because better returns could be obtained in the stock market. With mortgage rates of 6% or higher, paying off the balance will provide a guaranteed return. For rates between 3% and 6%, it depends on what the borrower is most comfortable with, he said.
Benz said she saw the other side of the debate recently when she suggested a friend use their inheritance to pay off her mortgage. She said her friend was completely against the idea.
“It’s like, ‘Well, why not cancel this recurring monthly bill?'” Benz said. “Her view was, ‘No, it would feel bad to see my portfolio shrink so much.'”
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Ted Jenkin, CFP, CEO and Founder Oxygen FinanceThe Atlanta-based financial advisory and wealth management firm told CNBC that he generally advises clients to pay off their mortgage if it makes sense, even if they haven’t retired yet.
“I’ve helped a lot of people pay off their mortgages and they say, ‘It’s great to drive home and know that I own that property; no one can take it away from me,'” said Jenkin, who is also a member. of CNBC Football Association Board of Directors.
Getting out of mortgage debt can also provide career flexibility to start a business or pursue other goals, he said.
True, the debate over whether to pay off the mortgage is “more emotional and psychological than financial,” Jenkin said.
In other words, there is no single right answer. The same goes for other topics Benz touches on in her book.
The Emotional Issues of Preparing for Retirement
It is worth noting that the content of this book is evenly divided between financial and non-financial content. The big money questions people ask themselves as they prepare for retirement are just as important as the emotional questions.
Michael Fink, a professor of wealth management at the American College of Financial Services, told Benz that the things that bring you joy at work may change in retirement. So you shouldn’t just think of retirement as relaxing because you need something to relax with.
Jamie Hopkins, chief wealth officer at WSFS Bank, told Benz that while goals like playing golf or visiting your kids may take a few days off, ask yourself what a 365-day year will look like in retirement.
Ultimately, retirement provides individuals with new opportunities to reinvent themselves.
This is an opportunity to ask yourself, “What will I regret?” Jordan Grumet, a hospice physician, author and podcast host, told Benz that it’s often the opportunities we fail to take that end up haunting us on our death beds.
